Legislating plain packaging of tobacco and international law

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01 Mar 2013 — By Daniel Kalderimis, Partner, Chapman Tripp

The announcement

On 19 February 2013 the Government announced that it would introduce, by the end of the year, legislation to require tobacco products to be sold in plain packaging. That decision followed a consultation process conducted by the Ministry of Health between April and October 2012.

The delay

At the same time, the Government has signalled that the progress and legal effect of any legislation is likely to be delayed in light of international law challenges made to Australia’s federal plain packaging legislation (the Tobacco Plain Packaging Act 2011 and the Trade Marks Amendment (Tobacco Plain Packaging) Act 2011). The Government’s press release stated:

There is a risk that tobacco companies will try and mount legal challenges against any legislation, as we have seen in Australia. In making this decision, the Government acknowledges that it will need to manage some legal risks. As we have seen in Australia, there is a possibility of legal proceedings. To manage this, Cabinet has decided that the Government will wait and see what happens with Australia’s legal cases, making it a possibility that if necessary, enactment of legislation and/or regulations could be delayed pending these outcomes.

Australia’s international law challenges

Australia has faced three legal challenges to date, two of which are still pending. These are, respectively, claims that the legislation:

amounts to an uncompensated acquisition of property in breach of Australia’s constitution. This claim was rejected last year by the High Court of Australia (JTI International v Commonwealth of Australia [2012] HCA 43 (Decision, 15 August 2012; Reasons, 5 October 2012));

breaches Australia’s WTO obligations. A panel has been established to hear this but is still to be composed (Australia – Tobacco Plain Packaging (Ukraine), WTO Dispute DS434). Materially identical disputes have been commenced by Honduras (DS435) and the Dominican Republic (DS441); and

Uruguay – which has also introduced plain packaging legislation – is also facing a BIT claim, for which a jurisdiction hearing was held earlier this month (Phillip Morris Brand Sàrl & Ors v Oriental Republic of Uruguay (ICSID Case No. ARB/10/7).

Both of Australia’s international law challenges raise interesting issues. The WTO challenge is based upon:

the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, contending that the legislation interferes with trade mark rights. This raises a question (amongst others) of the extent to which TRIPS guarantees the owner active use rights, or merely rights to exclude third parties from using registered marks;

the Technical Barriers to Trade (TBT) Agreement, contending that plain packaging labelling restrictions are more trade-restrictive than necessary to achieve Australia’s legitimate public health objectives; and

the national treatment provisions of the GATT Agreement, contending that the legislation somehow discriminates against foreigners (perhaps because Australia does not have a local tobacco manufacturing industry, and so only foreign trade-marks are affected).

The BIT challenge alleges that Australia’s legislation:

amounts to an indirect expropriation of Phillip Morris’ investments in Australia, being its intellectual property rights; and

does not amount to fair and equitable treatment as required by the BIT, due (amongst other allegations) to the “lack of credible evidence that the [plain packaging] measure will contribute to the achievement of the legislation’s stated objectives”.

Australia, like Uruguay, is contesting the jurisdiction of the BIT tribunal to hear Phillip Morris’ claim on the basis that the claimant (Phillip Morris Asia) acquired shares in Phillip Morris’ Australian operating company – and thus an investment in Australia – only following the Government’s announcement that it would introduce plain packaging legislation.

New Zealand’s position

New Zealand is, of course, a member of the WTO, and is already a third-party observer to the Ukraine- Australia dispute. It also, like Australia, has a BIT with Hong Kong (in New Zealand’s case signed in 1995).

Any New Zealand legislation is likely to elicit similar international law challenges to those filed against Australia, which explains the pragmatic decision to “wait and see what happens with Australia’s legal cases” before taking decisive action.

New Zealand has the benefit of a carve-out in its BIT, which is absent from Australia’s BIT, for measures “directed to...the protection of public health...provided that such measures are not applied in a manner which would constitute a means of arbitrary or unjustified discrimination” (art 8(3)). This could, in time, become significant.

In short, the Government’s announcement stops short of commencing open hostilities with tobacco companies pending further developments in the international law challenges against Australia. Those challenges will not be finally resolved until at least 2014, which raises the prospect that this issue may feature in New Zealand’s election year politics.